Typically, brokerage account holders move assets and change asset ownership at will, especially since many brokerage account holders have easy access to their accounts via communication means, such as via the telephone and/or personal computers via the internet. Moreover, brokerage account holders can buy additional assets, sell a portion of a holding or specify an accounting methodology at the time of sale or otherwise at the time of the change in the condition of the asset. Financial representatives, acting on behalf of the owner may also make these transactions on behalf of the owner.
These owner-generated transactions create inconsistencies in the way cost basis is calculated for their holdings. Moreover, these transactions make the complete and accurate accounting and reporting of cost basis very difficult. Specifically, the gains and losses on investment holdings are often incorrectly reported.
Similarly, actions by corporations and mutual fund companies can often result in reorganizations that can create complex changes to clients' asset and investment portfolios. In addition, the complex tax laws can affect the cost basis of an asset and how the cost basis is calculated.
To solve the problem of calculating asset cost basis when the ownership of the asset changes, portfolio owners can use tools such as Quicken that can accept cost basis changes that are individually crafted and manually entered by them. Typically, the ownership of an asset can change when the asset is sold, transferred, when actions by corporations and mutual funds result in reorganizations that can create changes to clients' assets, or when complex tax laws affect cost basis. For example, small brokerage houses have the capability of manually entering this information. Larger brokerage and financial planning institutions, however, have not been able to consistently use a combination of good data and automated tools to create accurate cost bases for assets without using large amounts of manual labor.
Moreover, solutions that require individuals to manually record and calculate accurate cost basis changes for assets do not attempt to deal with both corporate and client-driven portfolio changes. In addition, solutions that provide for complete automatic reconciling of cost basis changes for assets typically utilize “force balancing” techniques that assume that reporting of cost basis changes and gains of assets do not need to balance precisely. In essence, the various methods utilized to solve the problem of reconciling cost basis changes of assets either require too much manual labor to get complete and accurate results or do not provide accurate and complete reconciliation, categorization and calculation.
Other solutions include simply not providing clients with cost basis information or allowing clients' financial advisors to track this information. However, these solutions do not provide the types of services generally desired by individuals or financial representatives.
A system and a method, therefore, are needed that can automatically calculate and reconcile cost basis changes when assets are sold or otherwise reallocated in an account or a plurality of accounts. Moreover, a system and a method is needed that can completely and accurately provide for cost basis changes for assets without requiring large amounts of manual labor. In addition, a need exists for a system and a method that can solve the other various problems enumerated above.